Question

Problem 9.3 – Aging analysis, preparing journal entries and balance sheet presentation (LO 9-1)

At December 31, 20X0, Oettinger Corporation, a premium kitchen cabinetmaker for the home remodeling industry, reported the following accounts receivable information on its year-end balance sheet:

Gross accounts receivable

$

850,000

Less: Allowance for credit losses

(25,000

)

Accounts receivable (net)

$

825,000

During 20X1, the company had credit sales of $8,200,000 of which it collected $7,975,000. Oettinger employs the sales revenue approach to estimate its bad debt provisions and, continuing to use the same 1% used in previous years, made the normal adjustment at the end of 20X1.

Although 20X1 started off well, the industry experienced a slowdown in the last four months of the year, and cash collections consequently dropped off substantially. Moreover, a major customer, which owed Oettinger $85,000, unexpectedly filed for bankruptcy and went out of business during November, at which time its account was written off. Oettinger’s controller is concerned that some customers are experiencing cash flow problems and that the company’s allowance for credit losses is too low. As a result, she prepared the following schedule:

% of Accounts Receivable Balance

Number of Days Past Due

Estimated % Collectible

20

%

0-30

98

%

40

31-60

95

35

61-90

85

3

91-120

75

2

Over 120

50

Required:

1. 1-a. Determine Oettinger’s accounts receivable balance at December 31, 20X1.

1-b. Prepare a journal entry for each transaction affecting the accounts receivable balance for 20X1.

2. 2-a. Prepare an aging analysis.

2-b. Compute the required balance in the Allowance for credit losses at December 31, 20X1.

3. 3. Prepare any other required journal entries affecting the Allowance for credit losses for the year ended December 31, 20X1. (Do not duplicate any entries from requirement 1.)

4. Show Oettinger’s balance sheet presentation of accounts receivable at December 31, 20X1.

Answer 1

Answer 1

According to the given data the Journal entries & effect of each tranxn:

Dec 31,20X1 - Acct Receivables

Opening Balance	850000	7975000
Sales	8200000	85000
Ending Balance		9990000

1a) Sales for the year 31-December - 20X1

Acct. receivables	8200000(Debit in $)
Sales Revenue		8500000(Credit in $)

The company sales for the year 20X1 is registered. That's the reason, accounts receivables are debited as assets raised including sales income is credited as the revenue grown.

1b) 31 Dec 20X1 - Journal(Cash Collections)

Cash Collections	7975000(Debit in $)
Acct. Receivables		7975000(Credit in $)

The company got some cash from its clients. That's the reason the cash is debited as assets improved moreover accounts receivable is credited as the asset is decreased.

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